Will HMRC prosecute me for underpaid tax?

Underpaid tax on its own doesn't lead to prosecution. HMRC opens hundreds of thousands of compliance checks and enquiries each year, and the vast majority are resolved through the civil penalty system: extra tax, interest, and a percentage-based penalty.

Criminal investigation is reserved for cases HMRC considers serious and deliberate, typically involving sustained concealment, false documents, or organised evasion, rather than an isolated error or even careless behaviour over several years.

Even where HMRC suspects fraud, its published strategy is to prefer the civil route where the taxpayer cooperates. The Contractual Disclosure Facility under Code of Practice 9 is a formal offer of immunity from prosecution for the specific matters disclosed, in exchange for a complete and accurate account.

HMRC's Litigation and Settlement Strategy sets out publicly that civil procedures are its usual approach, with criminal investigation reserved for cases with particular features, such as organised criminal gangs, deliberate targeting of the tax system, or repeated offending after a previous warning.

Where fraud is suspected but HMRC is prepared to consider the civil route, it typically issues a Code of Practice 9 letter, inviting a formal admission and full disclosure through the Contractual Disclosure Facility. Accepting the offer and being open and complete provides protection from prosecution for the matters covered.

Refusing the offer, providing an incomplete disclosure, or continuing to conceal information can lead HMRC to escalate to a criminal investigation, run by specialist teams with powers to arrest, search and prosecute.

For most director-led enquiries, even ones involving significant sums, such as undeclared dividends or an incorrectly claimed R&D credit, the realistic outcome is a civil penalty, not a criminal charge, provided you engage honestly.

The risk profile changes if there's evidence of deliberate falsification, such as fabricated invoices, or if you mislead HMRC during the enquiry itself. Directors sometimes make an initially civil matter worse by giving inconsistent explanations once questioned.

If you receive a Code of Practice 9 letter, that's a strong signal HMRC already suspects fraud specifically, and it needs specialist representation from the outset, not a general practice accountant unfamiliar with the process.

A civil outcome costs tax, interest and a penalty, all quantifiable and negotiable within statutory ranges. A criminal outcome carries costs far beyond money, including reputational damage, potential director disqualification, and in the worst cases, a custodial sentence.

Because the stakes differ so dramatically, getting specialist advice the moment there's any suggestion HMRC is treating a matter as fraud, rather than a routine inaccuracy, is one of the highest-value decisions you can make in an enquiry.

Growth plan clients have free tax investigation insurance included, which supports professional fees for standard civil enquiries — see /fees for what's included and where specialist fraud advice sits outside that cover.

Don't assume a large tax bill automatically means criminal risk. Size of the liability isn't the deciding factor; deliberateness and concealment are.

Don't give HMRC an account you're not confident is accurate just to move the enquiry along. Inconsistent statements are far more likely to raise concern than an honest 'I need to check that'.

Don't ignore a Code of Practice 9 letter or treat it like an ordinary compliance check letter. It requires a formal, careful response and specialist advice before you reply.